Oil Hits 7-Week Low, Settles Above $123

Oil dropped $2 to a fresh seven-week low on Friday, extending a decline that has knocked more than $23 off crude in two weeks as high fuel prices continue to batter demand.

Oil Pump
Oil Pump

U.S. crude fell $2.23 to settle at $123.26 after falling to $122.50 earlier, the lowest since June 5. Brentcrude lost $2.01 to trade at $124.43 a barrel.

Fuel consumption in the United States and other industrialized nations has begun to slide, dragging oil down from record peaks over $147 a barrel on July 11.

Additional pressure came as the U.S. dollar extended gains against the yen and the euro, following reports showing an unexpected rise in U.S. durable goods orders and stronger-than-expected U.S. home sales in June and consumer sentiment for July.

Investors flocked into commodities earlier this year as a hedge against inflation and the weak dollar, but analysts say they have begun to unwind those positions over the past two weeks.

"The rise in U.S. durable goods orders pushed the dollar up and the Petrologistics estimate of OPEC output rising --both helped pull down crude futures," said Phil Flynn, analyst for Alaron Trading in Chicago.

Industry consultant Petrologistics said estimated a 200,000 barrel per day rising in OPEC production for July.

Rising demand in emerging economies like China launched oil on a six-year rally that sent prices up sevenfold at their peak. The sharp drop has some analysts forecasting oil prices may have peaked, with Lehman Brothers predicting $90 a barrel by the end of the first quarter of 2009.

Russia, the top exporter outside OPEC, is slashing its August oil export plan as oil firms rushed to re-route volumes to domestic refineries, lending some price support.

Support has also come from rebel threats against oil installations in OPEC member Nigeria.